Decentralized Mining in Centralized Pools﻿,11/2018, with Will Cong and Jiasun Li.Dispersed cryptocurrency miners form pools for risk-sharing benefits, leading to centralization in a decentralized environment. It exacerbates arms race competition in mining and has profound implications on climate change. In equilibrium, larger pools charge higher fees, hence disproportionally less miners joining and a slower pool size growth. Supporting empirical evidence is presented.​​Leverage-Induced Fire Sales and Stock Market Crashes﻿, 09/2018, with Jiangze Bian, Kelly Shue, and Hao Zhou. Presentation Slides.First Prize in Chinese Finance Annual Meeting, 2017Study account-level trading data of a large sample of margin accounts, including both regulated brokerage-margin and unregulated shadow-margin, during the Chinese stock market crash in 2015. Document direct evidence for leverage-induced fire sales. Show the highly levered shadow-financed margin accounts, due to the lack of regulation, play the major role during the stock market crash.

The Financing of Local Government in China: Stimulus Loan Wanes and Shadow Banking Waxes, 10/2018, with Zhuo Chen and Chun Liu. Presentation Slides.Article on Vox China.Winner of CFRC Best Paper Award, 2017​China's four-trillion-yuan stimulus package fueled by bank loans in 2009 led to the rapid growth of shadow banking in China several years later, evidenced by the composition shift of the local government liabilities.In this article we follow China Securities Index (中证指数) to use Municipal Corporate Bonds as the translation of 城投债. These bonds are issued by the Local Government Financing Vehicles (政府融资平台), hence legally they are just Corporate Bonds; but they have implicit guarantees from the corresponding local governments, hence enjoy the extra safety of Municipal Bonds.

Leverage Dynamics without Commitment, with Peter DeMarzo, 09/2018. Winner of XiYue Best Paper Award in CICF, 2017Firms who cannot commit to their future debt policies will issue debt but never repurchase at any point of time, and the firm's leverage follows an endogenous mean-reverting process in response to asset growth shocks. Equity and debt valuations and endogenous debt issuance polices are derived in closed-form for the log-normal cash-flow process.

A Macroeconomic Framework for Quantifying Systemic Risk, with Arvind Krishnamurthy, 05/2017. ﻿Presentation Slides﻿,Matlab code.Winner of Swiss Finance Institute Outstanding Paper Award 2012Systemic risk arises when shocks lead to states where a disruption in financial intermediation adversely affects the economy and feeds back into further disrupting financial intermediation. Model is calibrated to match the systemic risk apparent during the 2007/2008 financial crisis.

​PUBLICATIONS

FinTech Topics

﻿Blockchain Disruption and Smart Contracts﻿,a new illustrating trade-finance example. 05/2018, with Will Cong. Presentation Slides. Forthcoming in Review of Financial Studies, FinTech Registered Report. The single "truth" on Blockchain is a decentralized consensus that is achieved via distributing information. The fundamental tension between decentralized consensus and distributed information. Blockchain facilitates entry which is pro-competitiveness, but may foster collusion among incumbents which is anti-competitiveness.​Financial Markets and Macroeconomics

A Model of Safe Asset Determination, with Arvind Krishnamurthy and Konstantin Milbradt, 04/2018, forthcoming in American Economic Review.The safe asset tends to be the bonds issued by a relatively strong country. Large debt size helps the safety status given a high global demand for safe asset (previously circulated under the title of "A model of reserve asset.")

Financial Sector Leverage Data:Both Restud and AER papers predict that leverage of the financial sector in general equilibrium rises during crises, rather than falls as would be consistent with a deleveraging model. This short note presents empirical evidence consistent with our model; for more direct evidence, seeIntermediary Asset Pricing: New Evidence from Many Asset Classes. The notes also explains the empirical deleveraging pattern that other models have focused on.

Optimal Long-term Contracting with Learning, with Bin Wei, Jianfeng Yu, and Feng Gao, 2017, Review of Financial Studies 30, pp. 2006-2065.Presentation Slides.Online AppendixWith uncertain profitability in dynamic agency relationship, the agent has incentive to shirk to manipulate the principal's future belief, giving rise to a long-lasting hidden information problem. The optimal contract implements time-decreasing effort, and has a feature of "stock options" in that incentive goes up after good performance.

Uncertainty, Risk, and Incentives: Theory and Evidence, 2014, with Si Li, Bin Wei, and Jianfeng Yu. Management Science 60, pp. 206-226.Winner of The Chinese Financial Association 2012 Best Paper AwardIn contast to a negative risk-incentive relation predicted by standard agency theory, the learning-by-doing effect may lead to a positive uncertainty-incentive relation. We present empirical evidence that is consistent with this prediction.